At first glance, for the average community service organisation, the notion of a merger or acquisition may feel a bit like selling your soul. It may feel like something that will completely change the fabric of your service, focusing only on superficial outcomes. But this is far from always being the case.
In fact, with the right planning, a merger or acquisition could actually deliver substantially better outcomes for your clients in an ever-changing environment of marketisation, regulations and costs.
A merger or acquisition could be the strategy your organisation takes to achieve the scale, economies and efficiencies it needs to:
(a) compete in the current environment, and
(b) provide the best possible outcomes for clients.
The baby need not be thrown out with the bath water.
Aaron Dahl, Partner at McCullough Robertson Lawyers, has extensive experience in mergers and acquisitions across both the not-for-profit and for-profit sectors.
Dahl says there are many factors driving consolidation in the Community Services Industry.
Some of the factors he outlines include:
“Organisations need to carefully consider their long- and medium-term strategies,” says Dahl.
“Mergers and acquisitions should be driven by need and be based on those strategies.”
Cristian Ulloa is a partner at BDO Australia. He specialises in strategic leadership development, HR strategy formulation, HR measurement and workforce planning and has over 20-years experience working with both public and private sector organisations.
When we talked to him about why a community service organisation would go through with a merger or acquisition, Cristian said: "A big reason for mergers is scale."
"The idea being that with scale comes economies so it would make sense to do this, and integrate back-of-house activity, thereby reducing service delivery costs.
"In my experience though, many mergers don't live up to the promise of increased efficiency, in part because of poor planning – or no planning – on how services will, or need to be, integrated. The benefits of integrations are not always realised," he said.
"Another reasons organisations may merge is brand strength. Combining under one brand may strengthen organisations post merger."
Dahl’s key advice here is to “be organised, have a plan, be ready to clearly articulate the strategy, and show how it can be achieved through a merger”.
Ulloa adds that "apart from a business case for change, there has to be a willingness from the boards to merge. Usually, this is where mergers tend to stall.
"The cultures of the two workforces is also critical, as is the capacity of the teams.
"I have seen mergers not achieve expectation because not enough work was done to gain insight into the capability of the teams," says Ulloa.
"The missing ingredient from my perspective is not enough attention is paid to the cultures of the two entities and the change management required to acheive the desired business benefits."
“Protection mechanisms can be put in place, such as a requirement for member approval,” says Dahl.
“However, directors and committee members should always be open to discussion and to considering transactions where to do so fits with the organisational strategy and is in its best interests.
“Often protection mechanisms will come back to bite an organisation at a later time when they want – or need – to pursue a transaction (merger or acquisition) to survive or grow,” he says.
On this question, Ulloa says that organisations have to assume that they are a target and consider possible mergers.
"Ultimately, boards have to agree to the merger and business cases have to stack up," he says.
Paul Ronalds is Save the Children Australia’s Chief Executive Officer. In an article he wrote for Pro Bono Australia more than two-years ago, he talked of the growing trend towards mergers and acquisitions for Australian not-for-profit organisations.
“Increasingly, not-for-profits face more competition from for-profits.
For-profits now dominate the aged care sector and the NDIS trials have generated hundreds of new for-profit enterprises, seeking to compete for consumer directed disability funding. It’s the perfect storm.
As Charles Darwin’s theory of evolution demonstrates, it’s not the strongest of the species that survives, nor the most intelligent, it is the one that is the most adaptable to change.
Unless not-for-profits face up to this evolutionary challenge, they will quickly become a species at risk. And so will the vibrant civil society that they seek to serve.”
His comments remain true and worthy of serious consideration.
And it’s precisely why the CSIA have partnered with McCullough Robertson Lawyers and BDO Australia to host a workshop on the controversial topic of mergers and acquisitions in the Community Services Industry.
You’re encouraged to come along on 19 July 2017 to uncover how it all works, and what’s really in it for you and your clients.
The workshop will also include a panel discussion with community service organisations who have experienced the benefits and challenges of merging with or acquiring other organisations.
It’s worth attending just to be armed with all the facts and have all the myths busted.
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